Knowing when liability insurance will and will not cover dicamba injury damage will be key for applicators and farmers in the 2018 season. (DTN photo by Pamela Smith)

There was no question what was to blame for the curled soybeans on the central Illinois farm in late June.

The farmer, the neighbor who made the application, even the investigator from the neighbor's insurance company, all agreed. Off-target dicamba movement was the culprit.

Yet the letter the injured farmer received months later from the insurance company was quite clear: "We do not find any negligence on the part of our insured and are respectfully denying your claim." The company concluded that the dicamba damage had occurred from volatility -- a factor beyond the applicator's control -- and that fault lay with the product, not the application of it.

DTN acquired copies of these letters, but because of the sensitivity of the situation, allowed the sources to remain anonymous.

The dicamba injury crisis of 2017 has forced many farmers and applicators to delve more deeply into the world of liability insurance, full of confusing language and important legal implications.

With Xtend soybean acreage set to swell toward 40 million acres in 2018, now is a good time to review what liability insurance does and does not cover -- and how dicamba has thrown a wrench in the works.

1. HOW DOES LIABILITY INSURANCE HANDLE HERBICIDE DAMAGE?

Most insurance companies offer a type of add-on insurance called "spray endorsements" for applicators who will be applying agricultural chemicals and want liability insurance, explained Jason Berkland, commercial underwriting director with Nationwide Mutual Insurance Company. There are two types: one for an individual farmer who only sprays his own fields and one for commercial applicators, who spray the fields of multiple growers.

2. WHAT IS COVERED?

"If an applicator is making an application of an herbicide and unknowingly allows it to move off target and it causes property damage to a third party, that most likely will be covered," Berkland explained. The off-target movement must be accidental, he stressed.

For example, if an applicator started spraying when winds were below the labeled maximum speed, but an unexpected gust of wind sent the product into a neighboring field, that would be covered.

3. WHAT IS NOT COVERED?

If a farmer knowingly operates off-label -- which is against federal law -- most insurance policies will not cover that damage, Berkland said.

"We determine 'knowingly' versus 'accidentally' through our claims investigations," he said, noting that Nationwide's investigators are all either certified agronomists or have agronomy training.

So why wasn't the central Illinois farmer reimbursed for the damage to his soybeans after his insured neighbor followed the label but unwittingly drifted dicamba into this field?

"We have a policy to defend our insured for his negligence against a third party, but if once our investigation is done and we show he did everything correctly, then the problem lies with the product and the liability with the manufacturer," Nationwide Associate Vice President of Risk Management Steve Simmons explained.

This situation -- where liability insurance claims can be denied for being both on and off label -- is somewhat unique to the new dicamba herbicides, noted Ted Feitshans, a North Carolina State University Extension professor who covers environmental and agricultural law. "Farmers are in a real catch-22 here," he said.

4. WHAT HAVE WE LEARNED FROM 2017?

Perhaps the biggest takeaway from the 2017 season is that, despite manufacturers' denials, volatility has been a significant cause of off-target dicamba damage, the Nationwide representatives said. "We're seeing most of our claims involve physical drift or volatility," Berkland said.

This is a fairly new development for insurers, who usually face herbicide damage claims stemming from tank contamination or use of the wrong chemical, Simmons added. "Herbicide drift has not been a major player for many years," he said.

These dicamba-specific issues leaves the injured party without insurance compensation, but they also leave the insured applicator open to legal trouble.

If a farmer with damaged property has his claim denied due to a product problem, such as volatility, his only recourse is to sue the applicator or the manufacturer, Feitshans said.

The insurance company will defend its insured in a lawsuit, but it is unlikely to take a manufacturer to court, Simmons added. "There is not a lot of interest in the court system that we are [compensated]," for paying for damage stemming from a product problem, he said. "The manufacturer is in a very superior position in these types of things."

5. HOW CAN YOU PREPARE FOR 2018?

Despite these unique risks posed by dicamba next year, insurance companies aren't likely to have new policies in place to address them for at least a few years, Simmons said.

"I think the insurance market will probably adapt to provide necessary coverage, but that takes time," Feitshans explained. "Insurance companies hire actuaries who determine the risk and cost of risk; if you don't have history for a product or situation, the actuary can't determine risk and its cost. So what we're doing now is developing a history for dicamba."

The Nationwide representatives did have some advice for applicators, however.

"It's important to go through the policy with an agent and know exactly what they are covered for, because it's their assets on the line," Berkland said.

This is especially true of commercial applicators, who take on a lot of the risk even with a liability policy, Simmons pointed out. "On the commercial side, they retain a majority of loss on this," he said. "It's not just the insurance company taking a hit, it's the retailer that's taking a pretty big hit."

Just because you are an individual and not a retailer or co-op, don't assume you don't need a commercial spray endorsement, Simmons added.

"We've noticed farmers are continuing to get into more custom work," he said. If a farmer gets a spray endorsement only for spraying his own crops, but then proceeds to spray a neighbor's, that coverage is no longer valid, Simmons warned. "You need to make sure you're getting the right policy."